FRANKFURT (MNI) – The European Central Bank’s non-standard
liquidity measures constitute a strong intervention in the market and
are only to be maintained as “absolutely necessary,” ECB Executive Board
member Juergen Stark said Thursday.

The central bank has, thus, already begun the process of
withdrawing measures and further steps in this direction will follow
“together with the gradual normalization of conditions in financial
markets,” he told a convention audience in the German city of Essen,
according to a speech text provided in advance by the bank.

The central bank’s “current monetary policy stance is accommodative
and, in view of the economic stabilization, if anything has become more
accommodative over the previous quarters,” Stark added.

“In regards to price stability, the current interest rates are
still appropriate,” he said.

“The risk exists, however, that too loose a monetary policy — and
I mean both the interest rate level and the special measures — can
potentially lead to undesired side effects in the medium term,” he
cautioned.

The price outlook in the Eurozone “is still moderate,” Stark said,
noting that the current level of inflation is at 1.9%, just below 2%.
“Also for 2011 we expect moderate rates of [inflation],” he said, adding
that “mild upward risks exist, especially [ones that] are linked with
energy and commodity prices (excluding oil prices).”

Some fear that monetary policy could be inflationary, but Stark
called these fears “unfounded.”

“Supported by our monetary analysis, we see no inflationary dangers
over the medium term,” he underscored.

“We are observing globally, however, an ample liquidity development
and an increase of food prices in developing countries, which has not
shown itself in our [region]. Raw materials prices have also recently
risen more strongly,” he noted.

“We are and remain alert and will counter early inflationary
tendencies,” Stark assured.

There are indications that the speed of the economic recovery in
the Eurozone is “slowing somewhat” in the second half of the year. But
“the fundamental factors still speak for a continuing positive economic
trend, also beyond the end of the year, with increasing signals of a
self-sustaining recovery [deriving from] both external and internal
impulses,” he asserted.

The global recovery should continue to have positive a influence on
demand for Eurozone exports, Stark said.

The proposals by the commission headed by European Council
President Herman Van Rompuy to reform budgetary and economic
surveillance in the EU “fundamentally go in the right direction,” Stark
said.

But, repeating concerns uttered recently by members of the ECB
Executive Board, he argued that the agreements lag behind “what would
have been necessary for a considerable improvement” of economic policy
governance in the Eurozone.

The reforms do not add up to the “quantum leap” called for by the
ECB, he lamented.

–Frankfurt bureau; +49-69-720142; frankfurt@marketnews.com

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